On Wednesday, ASML released its financial report for the second quarter and stated that the period’s sales of 6.24 billion euros ($6.82 billion) exceeded the company’s expectations, even though overall net sales declined compared to the same period last year. 

Despite geopolitical uncertainties and restrictions on chip-related exports from the Netherlands to China, demand for ASML equipment in the Chinese mainland market remained strong, accounting for 49% of the Dutch company’s net system sales in the second quarter.

Why it matters: ASML’s revenue was impacted in the previous two quarters after the Dutch government’s chip-making equipment export restrictions took effect last September, and ASML’s export license expired at the end of 2023. Demand in the Chinese mainland market has now primarily shifted to unrestricted DUV (deep ultraviolet lithography) equipment.

Details: ASML reported mixed financial results for the second quarter, with a 7.6% year-on-year decline in net sales but an 18% increase from the previous quarter. On the same day, their US-listed shares dropped 13% due to reports that the US is considering even stricter rules around chip-related exports to China.

• In the second quarter of 2024, ASML achieved net sales of 6.24 billion euros ($6.82 billion), a decrease of around 7.6% from the 6.75 billion euros ($7.38 billion) it reported for the same period last year, though the figure marked an increase of around 18% compared to the first quarter of 2024’s 5.29 billion euros ($5.78 billion), according to the report.
• In terms of regional breakdowns, mainland China continues to be ASML’s largest market, with mainland Chinese net system sales accounting for 49% (2.33 billion euros, equivalent to 2.55 billion dollars) of the company’s total. This proportion remains consistent with the first quarter, reflecting a 20% increase from China’s 1.94 billion euros ($2.12 billion) in the first quarter of this year.
• “Gross margin for the quarter came in at 51.5%, which was above our guidance, primarily driven by more immersion systems than planned,” CFO Roger Dassen said on an ASML investor call. Dassen added that the company expects total net sales for the next quarter to hit between 6.7 billion euros ($7.32 billion) and 7.3 billion euros ($7.98 billion), with R&D expenses estimated at around 1.1 billion euros.
• “Although macro uncertainty remains, overall semiconductor inventory levels continue to improve, trending towards more healthy levels,” ASML CEO Christophe Fouquet said during the same investor call. The company’s outlook for the full year is unchanged with revenue expected to be similar to last year, he added.
• US-listed shares of ASML slumped 13% following a Bloomberg report on Wednesday that the Biden administration is considering tougher restrictions to limit companies exporting critical chip-making equipment to China.

Context: On June 30, 2023, the Netherlands announced new export controls on the sale of advanced chip-making equipment to China, which took effect on September 1 that year. The rules require Dutch manufacturer ASML to apply for a license to ship some of its deep ultraviolet lithography (DUV) systems to China.

• In the first quarter, ASML sales revenue was 5.29 billion euros ($5.78 billion), down from 6.7 billion euros ($7.32 billion) during the same period last year.